The revenge of analog, p.21
The Revenge of Analog, page 21
For the Swiss, this meant reframing their technology. First, they created the Swatch brand, an affordable, fashionable line of watches, which showed they could compete on emotion rather than precision. Second came the renewed notion of craftsmanship, which accrued an elevated luxury status for such brands as Patek Philippe. “You’re not just experiencing this technology and its value, but the craft that’s been passed down for generations, and you can connect to human hands that formed and built it in the first place.” That knowledge is the luxury a watch buyer who pays $50,000 or $100,000 for a Patek Philippe timepiece is purchasing, which vastly outweighs any material worth of the watch’s components or the accuracy of its timekeeping. If you want accurate time, look at your phone.
Raffaelli told me that the emotional brand Shinola built around its workers protects its watches from pricing concerns in a way that is different from Swatch or Fossil, where the worker is anonymous. Shinola’s workers aren’t just the people who assemble the product; they are the product, and that prevents the product from becoming a commodity good whose price is the main factor in its success.
The other half of Kartsotis’s investment thesis goes back to the notion of reskilling at industrial scale. Shinola’s leather watch-strap production was created out of necessity, when the company’s supplier couldn’t keep up with demand. Once Vega and others were training Shinola’s workers in the craft of fine leather manufacturing, it installed the capacity to create other leather products. So, Shinola started making leather bags, wallets, and other accessories at its factory with the same workers and machines. Kartsotis told me that this has put the company a hop, skip, and jump away from making such products as shoes, which could create many more jobs than watches. Each new skill taught to Shinola workers would lead to more products, which would lead to more new skills, and more products beyond that. This is how Kartsotis envisioned the future of Shinola: growing from a small niche into something much more mass market.
When I spoke with Kartsotis by phone (he didn’t want to be quoted directly, so I’m paraphrasing his comments), he told me the Shinola factory was built to assemble half a million watches a year, a number that it would soon reach. That could probably double to a million watches annually, which could lead to a couple of thousand jobs in Detroit, in addition to other product lines. This would be a drop in the bucket, employment-wise, compared to an auto parts plant running at three shifts, but for Kartsotis, who wants to take Shinola public on the stock market, it would prove out his investment in the brand as an emotional idea rather than a specific product (in 2014, the company reported revenues of $60 million, but was not yet profitable). That success would be important, not just for Kartsotis, Shinola’s shareholders, and its employees, but for the larger population of entrepreneurs and investors in Detroit and beyond, who could look at Shinola’s success as a model of an analog business to emulate.
Analog industries, such as manufacturing and retail, need profitable success stories, because one of the biggest narratives of the digital economy is that it is the best place to get rich. The huge stock market valuations of such companies as Facebook and Amazon feed this storyline, as does the news of startups with absolutely zero revenue being acquired for billions of dollars. Who wouldn’t have loved to invest early in something like Instagram and retire spectacularly wealthy? Thanks to its ability to scale rapidly, a digital business can multiply its value ten, twenty, or a hundred times in just a few years. That is almost impossible with an analog business, whose growth is hemmed in by the laws of the physical world. People need to be hired; warehouses need to be built; supply chains have to be figured out. All of this takes time and money, which is why even low double-digit growth is seen as really good for an analog business.
There’s a flip side to this, of course. Because it is a winner-takes-all industry, investing in a digital business is much riskier than investing in an analog one. Venture capitalists might seem to make hoards of money, but most of their success comes from investing in a large pool of deals, hoping that one will hit it big and return a hundred times the investment, offsetting the losses from the other startups that failed to make any money. In contrast, someone who invests in analog businesses, such as a private equity firm, will invest in a smaller pool of business and use the funds to grow them over time.
Investing in analog businesses is a long, patient game of hitting singles and doubles to rack up runs. Investing in digital ones is waiting for the long ball. You might miss ninety-nine pitches, but none of that matters if you whack the hundredth out of the park. And the truth is that most technology startups will fail and be left with nothing to show at the end of the day, because they hold few concrete assets. A housing development that goes bust still has land that can be sold or held until it appreciates in value. If you invest in a technology company and it goes under, the most you can hope is to recover some of its office furniture. There is no long-term value in code. It is not an asset.
This matters in the greater scheme of things, because the notion that investing in technology is the way forward for households, institutions, and communities is more like a compelling sideshow than the story of the real economy. Multibillion-dollar valuations for such companies as WhatsApp and Uber distort reality. They are the exception rather than the rule. “New technologies have yielded great headlines, but modest economic results,” wrote Nobel Prize–winning economist and columnist Paul Krugman in the New York Times last year. “You see, writing and talking breathlessly about how technology changes everything might seem harmless, but, in practice, it acts as a distraction from more mundane issues—and an excuse for handling those issues badly.”
There is also the question of what type of investment best serves a community. In Detroit, the needs of the community and its underlying assets are overwhelmingly analog. “Forty-seven percent of adults in Detroit are functionally illiterate,” said Gary Sands, a former Detroit city planner and retired professor at Wayne State University, as we ate lunch next to the Shinola store. “Compuware [a Detroit software company], Twitter, and Google aren’t gonna do these folks any good. They’re an analog population.”
The problem is that analog jobs aren’t sexy in the way tech jobs are to politicians, investors and philanthropists, and the media.
“When Twitter put one person in an office downtown, it made the same headlines as Shinola opening its factory here,” said Kyle Polk, a real estate developer with the local firm Town Partners and a consultant to the Detroit Future City project, which gathers and analyzes the city’s economic data. Polk grew up in the city of Detroit, and returned after working in investment banking and for the Federal Reserve Bank of New York. He was raising his family in his grandmother’s old house, and has no illusion about the reality of his community’s needs and the role that digital technology companies can play in improving it.
“You think you’ll create these live-work-play communities by putting in a Whole Foods,” Polk said, referencing various urban revitalization schemes and developments being floated as solutions to Detroit’s problems. “But these people who don’t have jobs and are hungry won’t work-play-live. Motherfuckers will rob you in the Whole Foods parking lot! You’ve only made them more frustrated. . . . The majority of people outside the labor force in Detroit don’t have a college degree,” Polk said. “If you want to bring jobs into the community, why the fuck would you bring in college jobs? Analog isn’t a growing trend, it’s smart business. If you had a choice to bring in [a distribution warehouse] and Yahoo! why would you not take the one benefiting the labor pool?”
Polk saw Shinola as a more suitable model for the city: niche manufacturing and services that had the capability to scale, and built off the human and physical assets already present in Detroit, which made it attractive and competitive to investors. Polk’s firm had recently purchased several buildings around Shinola’s factory (which is housed in the city’s largest design college), and was developing a craft district of small and medium-size factories making labor-intensive, high-end consumer goods. There are a number of new manufacturing companies in Detroit along these lines, making everything from pet accessories to denim jeans, bicycles, beard balm, kitchen counters, frozen food, and high-end furniture. Some of these are tiny—really no more than a few people indulging a hobby—but others are major businesses that now occupy huge facilities and employ hundreds. Manufacturing remains Detroit’s greatest asset.
“Analog can be sexy,” Polk said. “And if you want more people in that space, it has to be sexy.”
Shinola had staked its entire existence on this notion. In the months after I visited its factory, it launched a production line for electrical cords and lighting accessories, and announced it would begin manufacturing audio equipment, including turntables and headphones. This coincided with a new partnership between Shinola and Third Man Records, which included a Third Man store opening in Detroit next to Shinola’s own shop, with a brand-new Third Man vinyl record–pressing plant set up behind it. It was a fitting return home for Jack White and Ben Blackwell, whose music careers began in the very neighborhood.
When I spoke with Kartsotis on the phone, he estimated the Third Man plant could press as many as 10 million albums a year, nearly as many as United Record Pressing did. All of this would create more jobs, more salaries, and put more money into the hands of Detroiters. The city may have been bankrupt, plagued by crime, inequality, poverty, and unemployment, but in this little analog corner of Detroit, business was booming.
8
The Revenge of School
There are few easy solutions to digital’s disruption of the jobs market. Some have proposed a mandatory minimum income, while others talk about the need for greater government investment in infrastructure, and subsidies for labor-intensive industries such as energy and manufacturing. The one solution that is almost unanimously accepted is the need for better education. From world leaders to economists, tech-industry gurus, and eager young teachers, creating the future of education is a mission that resonates almost universally.
How education’s future will be delivered to students is another story altogether, and it was one that Christopher Federico and Karen Wolf were tackling one arctic February morning in front of a classroom of teachers at the University of Toronto’s Rotman School of Management. Federico and Wolf are both full-time teachers themselves: he teaches problem-based learning at the gifted high school run by the University of Toronto and she teaches English at North Toronto, a public high school. The twenty-odd teachers before them came from a variety of backgrounds, ranging from kindergarten educators to community college professors, and were here for a two-day course the university offered in Integrative Thinking for educators. Integrative thinking is a methodology for complex problem solving used by management consultants, which the Rotman School taught to its MBA students. A few years back, Rotman began offering short courses to educators in integrative thinking, so they could teach these methods to their own students and build problem-solving skills into the curriculum.
Wolf and Federico began the lesson by asking everyone to quickly draw a portrait of the person next to them. After a minute, everyone revealed their portraits, and laughter rippled through the room. My portrait of Jeff, a fifth grade teacher from the nearby city of Guelph, resembled an anorexic robot, though to be fair, he made me into a flat-topped Frankenstein. “This will only work if we go a bit outside our comfort zone,” Federico said, explaining the point of the exercise. “Focus less on what you draw and more on how. This is not an algorithm. We are looking for a way of approaching the world in a manner that’s more reductive than breaking problems down in charts to spit out the one right answer.” The goal was not to make compromises between sets of available choices, or to think “out of the box” with random ideas, but to explore and examine the available options, and use the best of those to create innovative new solutions.
Federico drew a line down the center of a whiteboard. “What is the future vision of what school looks like?” he asked the class.
This was not a rhetorical question, but the problem these teachers would tackle today, first by comparing and evaluating two apparently contrasting models of education and later using the data to create a new approach for schools. One model was the brick-and-mortar school, the analog bedrock of teaching that exists the world over, and the place where all these teachers worked. The other model was the online-only, virtual school, a digital alternative that Federico said seemed to be the way of the future.
Wolf then asked the teachers to list only positive attributes of each model, as they would be making something called a pro-pro chart. “Nothing negative,” she said, “only pro here.” Teachers called out ideas for each: Online-only schools could connect students to teachers anywhere and anytime. They could be more cost-effective, and nearly every aspect of the experience was customizable to the individual needs of students. Teachers could even work from home, in their pajamas . . . a comment that elicited whoops of approval.
In terms of advantages, brick-and-mortar schools were situated in a particular community, and students could form deep social bonds with teachers and peers there, what Federico called the “hidden curriculum” of socialization. Educators in traditional schools got a job, a sense of belonging and purpose, and the reward of seeing students learn in front of their eyes.
Presented here as brightly as possible, these two models for education showed a harmonious, positive future for schooling, whether in-person or online. But out in the real world, the future of school and the role of digital technology in it have become one of the most hotly debated issues in the public interest. Education, especially in the United States, is often referred to as “broken” and “failing.” In global assessments and test scores, American students perform meagerly, far worse than those in other wealthy nations, and often less than some developing nations. Education reform has become the great cause in America, and various stakeholders champion a host of solutions to save it.
Few industries have embraced the desire for radical, transformative change in education with the zeal, enthusiasm, and commitment of the digital technology industry. This makes sense for two key reasons. First, education is a prized pig, ready to be roasted and devoured by digital disruption. Today, total spending on education technology remains low, around 5 percent of total education budgets in the United States, and less than 2 percent globally, but worldwide spending on K–12 classroom hardware technology alone is expected to reach $19 billion by 2019, and 2014 saw more than a 50 percent increase in venture capital funding for education technology companies. That’s a lucrative market to tap into.
Second, the high-tech world is fueled by education. Its businesses are created by highly educated individuals, often at universities, and many of the products and services it sells appeal to an educated population. Education has become the pet cause of digital’s business leaders. Bill and Melinda Gates, Mark Zuckerberg, and the venture capitalist Jim Breyer are among the top supporters of education philanthropy, funding everything from university scholarships and research grants to experiments in school reform stretching from inner-city Newark to remote African villages.
Underlying this is the belief that digital technology can transform education in the same way it transformed business, media, and communications. What emerges is a vibrant, multibillion-dollar market in education technology (ed tech, as it’s commonly known) that promises nothing less than a radical rethinking of education. Here is where the utopianism and manifest destiny of Silicon Valley meet your child’s elementary school, and where pedagogy and philosophy intersect with politics and business. Attend a presentation of an ed tech company, watch a TED talk about education, or listen to a school superintendent talk breathlessly about the new virtual-reality goggles she just bought for your kid’s school, and the future is bright indeed.
It is a future where every child has the ability to learn at their own pace, in the most stimulating way possible, from wherever and whenever suits them best, at a lower cost but with greater accountability and results. It is a future where school will be dynamic, where teachers will truly be able to unleash their creative potential, where inner-city teens will have the same advantages as those in wealthy suburbs, and the greatest university in the world will not be some ivy-covered campus, but anywhere your device gets a signal. The old, ineffective system of sitting in rows of desks, listening to a teacher regurgitate information from the pages of books, will be turned on its head. We won’t need their education. We won’t need their thought control. The walls will come down, and a bright new future will emerge.
That’s the promise, at least.
The reality of digital education technology, which has attempted to realize this future for much of the past thirty years, is that of troubled students who have shown tremendous promise but consistently gets D’s on their report card. It is a cautious tale of what happens when schools, communities, and educators place their blind faith in digital innovation while ignoring the proven evidence and research around the benefits of analog education. Time and again, analog schools and teachers have proven not only better at teaching students, but as I witnessed at several schools around Toronto, they can actually present more innovative solutions for education’s future.
This story is not unique to the digital era. The inventors, manufacturers, and evangelists for radios, mail-order correspondence courses, television, VCRs, and even the printing press all made grandiose predictions that their technology would either transform traditional schools or eliminate them entirely. Thomas Edison himself proclaimed that books and teachers would soon disappear from classrooms, because students would learn through the motion pictures he helped invent. The birth of the digital computer just added more claims to this long history. The latest educational software or device is always unveiled with the same breathless belief in technology’s potential to disrupt school.
